SAUDI - MALAYSIA RELATION

By : Mohammed Al-SudairiThe Saudi-Malaysian relationship, while rooted in a history of sustained contact predicated on religious and commercial links, only began to develop in the 1970s. This was in part due to King Faisal's special relationship with the Malaysian Prime Minister Tunku Abdul Rahman El-Hadj. King Faisal visited Malaysia in 1970, becoming the first Saudi head of state to do so.1. This was reciprocated by several visits on the part of Tunku's successors - Abdul Razak and Hussein Onn - in 1975 and 1976, respectively.2. These high-profile exchanges were largely driven by the need to solicit Saudi aid and fiscal support for Malaysia's economic development projects under the Third Malaysian Economic Plan (1976-1980) cycle. During this period, Saudi aid - in the form of loans - exceeded $250 million and was mainly directed at financing the development of education and medical infrastructure (such as the University of Technology and the Medical Faculty of the National University of Malaysia), ports, highways, and land reclamation projects among others.3 This was coupled with growing contributions from the Saudi state to Malaysia's religious organizations and institutions, including to Tunku Abdul Rahman's PERKIM (the Muslim Welfare Organization of Malaysia) and the International Islamic University of Malaysia (IIUM).4 In the 1980s, Saudi aid declined perceptibly as the Kingdom regarded Malaysia as a 'developed' country. Saudi-Malaysian economic ties have been traditionally shaped by energy. While Malaysia did export a variety of goods into the Saudi market, including agricultural produce, raw materials, precious metals, and increasingly machinery and electronic products, these were dwarfed in size by the Kingdom's oil and petrochemical exports. This situation translated into a serious trade deficit in favor of Saudi Arabia from the 1960s, with some reversals in the late 1980s and 90s mainly due to the collapse in international oil prices and the development of Malaysia's domestic oil production through PETRONAS (founded in 1974).5 The emergence of this indigenous capacity, however, did not fundamentally challenge the basic contours of the energy relationship between Saudi Arabia and Malaysia, primarily due to two reasons: firstly, Malaysian oil is of the sweet and low sulfur variety and is thus largely exported to the Asia-Pacific market where it "fetches a higher premium compared to other crude blends."6. Accordingly, and in order to satisfy its own internal consumption and realize its refinery investments, Malaysia imports lower-cost crude oil from abroad. As of 2010, Malaysia imported 160,000 bbl/d, more than half of which came from Saudi Arabia, the UAE, and Qatar7. Secondly, domestic production peaked at 862,000 bbl/din 2004 and has since then declined "as a result of maturing fields," reaching 643,000 bbl/d in 2012.8 This will likely strengthen energy relations between the two countries in so far as current trends hold and the Kingdom's export capacity is not seriously undermined over the short and medium-term.

In addition to the aforementioned energy policy, the Mahathir government sought to address the trade deficit with the Kingdom by attracting Saudi investments as early as the 1980s (generally under the umbrella of the 'active internationalism' and Islamic-oriented foreign policy of Prime Minister Mahathir) but Saudi capital was comparatively small and limited to a few areas in food processing, plastic materials, textiles, and electronics. By 1990, Saudi-Malaysian bilateral trade reached $260 million, which was, as noted earlier, largely tilted in favor of the Kingdom.9. However, this situation changed drastically after the Asian Financial Crisis in 1997, when Malaysia sought to diversify its economic portfolio by turning to the Gulf, emphasizing tourism and more expanded trade relations with the Kingdom. This coincided with the launch of the Saudi economic reforms which led to the formation of SAGIA in 2000 and, more importantly, paved the way f or the Kingdom's accession to the WTO in 2005. A Saudi-Malaysian Bilateral Trade Agreement was signed in 2000 (an Avoidance of Double Taxation Agreement had already been signed in 1993) and, to facilitate Saudi investments and tourism, visa requirements on the Malaysian side were largely dispensed with in 2001.10. The geopolitical situation that followed the 9/11 attacks also reinforced these trends and necessarily framed King Abdullah's visit to Malaysia during his 2006 Asia tour.By 2012, Saudi-Malaysian bilateral trade grew to $3.66 billion, with Saudi Arabia emerging as Malaysia's 19th largest trading partner.11. In actual value this figure is likely to be somewhat higher as most Malaysian goods are re-exported through the UAE due to tax differentials between the two Gulf countries.12. Moreover, Saudi investment has been steadily growing (although since 2005, it has been outsized by Emirati investments which make up 78 percent of total GCC projects in Malaysia)13. Thanks to favorable tax incentives and sukuk issuances emanating from the Economic Transformation Program (ETC), as well as the signing of several key agreements including the ASEAN-GCC Two Year Action Plan (2010), the Malaysia-GCC framework agreement (2011), and the MoU on Standardization (2012), all of which are aimed at facilitating bilateral trade and investment. By 2012, Saudi investment was estimated to be $865 million.14 These investments have largely concentrated onlow-value added areas such as private equity, energy, and real estate, but also some dynamic sectors such as Islamic banking and the halal industry. A few examples of the growing Saudi presence in Malaysia are worth taking note of: since its 2006 entry into the market, the Al-Rajhi Bank (the world's largest Islamic bank) has successfully established 24 branch offices across the country and is currently a major investor in the Penang International Halal Industry Park.15. More significantly, PetroSaudi International Ltd., a global investment and oil exploration/production company owned by the Saudi royal family, has also entered the Malaysian market through a $2.6 billion J-V in energy projects with 1Malaysia Development Bhd, a state-owned firm "which acts as a vehicle for Middle East investments in Malaysia."16. In addition to this, PetroSaudi has indicated an interest in investing over $2 billion in infrastructure and energy projects, as well as the Islamic banking sector.17. The company appears to be a major economic and political asset in the context of Saudi-Mala ysian relations. According to various reports, the chairman of PetroSaudi Prince Turki Al-Saud leased two Boeing 747s to ferry home Malaysians fleeing from Egypt after the 2011 Tahrir Revolution- a gesture that was made, according to PetroSaudi's CEO Tarek Obaid, "on behalf of the company and the Saudi royal family...[demonstrating] PetroSaudi's continued commitment to Malaysia."18. In 2013, Saudi Arabia's Project Management & Development Company Ltd(PMD) has invested over $1.6 billion in apolysilicon manufacturing plant in the eastern state of Sarawak.19 In comparison, Malaysian investment in Saudi Arabia has been quite limited, mainly due to structural issues, bureaucratic redtape, and the difficulty involved in obtaining business visas. Nonetheless, Malaysian investments have been growing steadily, mainly in the industrial sector.20 The participation of Malaysian companies in Saudi EPC projects, including the Al-Faisal University, King Abdu llah University of Science and Technology, the Jizan Economi! c City, the Jabal Omar Project and the Jamaraat Bridge, among others, is noteworthy.21. People-to-people relations also constitute an important element in Saudi-Malaysian ties. While there is only a small Malaysian community in Saudi Arabia, estimated to be around 1,000 strong (most of whom work as nurses besides a few students of Shariah and the Islamic sciences), nearly 30,000 Malaysians come for the Haj and Umrah every year.22. By contrast, there are currently 2,000 Saudi students in Malaysia pursuing higher education in IT, engineering, and medicine.23. More important are the Saudi tourists coming to Malaysia for leisure and medical tourism and who, in 2011 alone, were reported to have reached 87,693.24. Economically, Saudi-Malaysian ties are expected to continue to grow and strengthen over the coming years, with greater energy dependency and investments constituting its basic pillars. Moreover, it is likely that these economic and cultural ties will help deepen the nascent strategic partnership between the two countries as reflected in the signing of a 2010 MoU on Security Policy Cooperation covering such issues as "terrorism, drug trafficking, falsifying documents and cross-border crimes"25. And more significantly the dispatch of Prince Bandar bin Sultan -then the Saudi National Council Security General- as a special envoy to Malaysia.26. Overlaying this is the general warmth in relations between the Saudi royal family and Malaysia's current Prime Minister Najib Razak (reflected, for example, in the speedy extradition of Hamza Khasghari) ensuring in turn favorable prospects for the continued development of Saudi-Malaysia ties.